The fact that we were not able to ban mortgage securitization after the crisis is appalling. IMO this is the root of the problems. Make banks hold their loans on their balance sheets!
I also think the point about banks having capital buffers is laughable and not logical. It's like claiming we've solved chronic migraines because we have a stash of Tylenol. The cause has not been eliminated. And let's say there's a crisis and that bank capital is used to cover the losses. Now what? You now have banks which according to our own definition are under-capitalized. They used all their capital for yet another crisis. So now your banking system is weak again. Who is going to give money for these banks to capitalize again if they keep having crisis after crisis? Ah that's right, the taxpayer!
A nation's banking system reflects its cultural values. This is quite true about the USA.
>The fact that we were not able to ban mortgage securitization after the crisis is appalling. IMO this is the root of the problems. Make banks hold their loans on their balance sheets!
Absolutely. The problem is that mortgages have become speculative instruments, with the profit privatized and the risk socialized. The old system was far more stable.
The old system gave us the savings and loan crisis. Is it fair to say the alternative is to recognize that for many homeownership simply is not an option?
It sounds like a reasonable theory on its face. However, the outcome of this is likely that banks will stop making loans all together. If they were to offer mortgages at all, it certainly would not be a 30 year fixed rate product.
It's not correct to say that banks can sell off all of their risk through securitization. They do in fact retain some of the risk. Though most has been transferred.
The buffer is (in theory) in excess of the losses. So, after a crises a bank would be left with the buffer and be able to continue to operate as a going-concern. The question is how to set the buffer and how big ?
>However, the outcome of this is likely that banks will stop making loans all together.
Really? We had a healthy mortgage market for a great many decades before mortgage backed securities were invented. And if mortgages are such a bad idea that banks can't make money off of them, then we shouldn't have them.
It's quite simple to get a mortgage in other countries where banks don't securitize. And if you get into trouble they will work with you rather than immediately foreclose.
Fixed rate mortgages for 30 years are a scam. How can a consumer predict interest rates over 30 years? If they go down they have to spend money on fees to refinance which benefits the Lenders. Adjustable rate mortgages are far better and allow for quick stimulation to consumers when rates are cut.
I also think the point about banks having capital buffers is laughable and not logical. It's like claiming we've solved chronic migraines because we have a stash of Tylenol. The cause has not been eliminated. And let's say there's a crisis and that bank capital is used to cover the losses. Now what? You now have banks which according to our own definition are under-capitalized. They used all their capital for yet another crisis. So now your banking system is weak again. Who is going to give money for these banks to capitalize again if they keep having crisis after crisis? Ah that's right, the taxpayer!
A nation's banking system reflects its cultural values. This is quite true about the USA.